Thursday, August 04, 2005

Column on Employment at Will

Free Employment Relations and its Benefits

Tibor R. Machan

In the discipline in which I do much of my teaching, business ethics,
there is a heated debate about whether employment ought to be a matter of
free exchange between the parties involved or whether government ought to
set the terms of the employment relationship. The latter position is now
widely embraced by some of the most prominent business ethics teachers and
promoted in some of the most prestigiously published business ethics text
books and scholarly papers.

The label for the free exchange position is ?the employment at will
doctrine.? The idea is that when one is hired, unless otherwise agreed
upon, one may be fired and laid off without any reason having to be
given?at will?just exactly as one is free to walk away from the job once
it is completed. (Actually, one may even walk away before then, although
one may not be able to collect payment for the work done.)

This is indeed the norm in most private employment situations. If someone
is hired to mow another person?s lawn or clean another?s home, whenever
either party wishes to discontinue the employment relationship, there is
no requirement to justify the decision. The person hired or the person who
did the hiring is free to walk away from the deal.

Those who reject this for employment in larger industries will, of course,
argue that much more is at stake therein, so it shouldn?t be left to the
discretion of the employers, although I am aware of no one who defends the
idea that employers ought to be prevented from walking off the job if they
choose to do so, which of course millions do all the time. The reason for
this is, in the main, that in the 19th century many political economists
regarded workers as lacking bargaining power. Karl Marx, who relied
heavily on Thomas Malthus?s theory of population explosion within the
working classes, laid the basis of the case for special treatment for
employees. He believed, wrongly, that they were subject to easy
exploitation unless provided with special protection.

In the United States of America the case for employment at will has had
some success because of the widespread belief in a free market in the
labor market, although even here there are many laws regulating the
employment relationship. Still, it is much, much easier to fire or lay off
people in American than in Germany, France or Spain where socialist ideas
tend to be very influential. In these countries those in the labor force
as well as others pay a very heavy price for this protectionism. That
price is the far greater level of unemployment there than in a more free
market oriented USA. The reason is quite simple: When employers are
coerced to provide employees with job security and other benefits, the
level of economic entrepreneurship suffers. People just do not start up
businesses as willingly when they may not respond to market forces in
their hiring and firing policies as they do when they are free to do so.

It is one of the myths about free markets that firms just hire and fire
people at their arbitrary will. Even if there is complete freedom to hire
and fire, it is rarely done simply ?at will.? Sure, firing at will is not
prohibited in a free market but it is generally a dumb idea. One usually
fires those who fail to advance the enterprise or whose services are not
in sufficient demand by the customers of a firm. The pink slip is, as it
were, something sent to an employee by a shrinking market, not by one?s

In any case, in recent months the French government has finally gotten the
message about the employment at will doctrine and the recently appointed
prime minister, Dominique de Villepin has helped to enact several measures
easing France?s rules on hiring and firing. Predictably, opposition party
politicians and the trade unions are all up in arms about this. On the
other hand, surprisingly, President Jacques Chirac?s popularity has
climbed since these new measures, initiated by his new prime minister,
have gone into effect.

The general lesson from this is that not only is the employment at will
doctrine just but, quite unsurprisingly, it is also beneficial to workers.
A free market in employment encourages entrepreneurship and economic
development. Perhaps this lesson should be learned by the US Supreme Court
so next time the issue of private property rights comes up, another
bulwark against government economic regimentation, they will recognize
that freedom is the best path to economic development, not the abuse of
the eminent domain law.

Sunday, July 31, 2005

Column on They should all be in Jail [please proof]

They should all be in Jail

Tibor R. Machan

This is what happens when you treat a bunch of crooks with kindness: they
ruin nearly everything. That is what?s happened with a good many former
Soviet bloc countries, where instead of jailing all the communists who
destroyed people and everything else for over 40 years, these same people
and their friends are treated as equal partners in the effort to recover
from the socialist nightmare.

It is bad enough that too many Western politicians and intellectuals hold
on to some idiotic hope about ?a third way? for Europe, some hybrid of
capitalism and socialism, as if mixing slavery with liberty ever amounted
to a happy compromise. But the slow go process in Eastern European
countries, such as the eastern portion of Germany, Bulgaria, Romania,
Poland, and Hungary, is wreaking havoc all over the place.

The Hungarian economist Janos Kornai, who also taught at Harvard
University at times, made the point clearly shortly after the fall of the
Berlin Wall: Don?t even try to establish a welfare state throughout the
former Soviet bloc since for it to have a chance, there have to be rich
people to steal from and none of these countries have enough of those
among their citizens. Kornai was mostly ignored and matters proceeded
toward a full scale policy of attempting to extract blood from a turnip.
So most of these places are broke, have slow growth, still cling to
impossible infrastructural features, and systematically mislead the
citizenry with nostalgic nonsense about job security and guaranteed social
welfare. Instead of clear leadership from intellectuals and politicians
that would level with everyone about how free enterprise is the best
economic hope for the people, even if it takes some time, the folks from
these sad parts are being cuddled with political economic nonsense.

In discussions with some sensible Germans from the former East Germany I
learned that the attitude that?s prominent in that region is represented
in this supposedly cute and funny movie, Good Bye Lenin, in which East
Germany?s socialist hell is treated as a desirable, albeit slightly flaky,
political economic fantasy. No one makes it clear?because most of the
political and intellectual leaders are old line commies who yearn for the
former days when they were in power and could suck out the life blood of
the sadly compliant citizenry?that there is no such thing as a free lunch.
People are encouraged in their preposterous nostalgic mode, one that looks
back to a time when a feeble job security with zero prospect for
prosperity ruled, with the typical malady of nostalgic vision?the most
important element of the past is omitted, namely, that the future back
then was totally bleak and everyone worried about it. (That, by the way,
is the fallacy of nostalgia?dropping from recollections worries about the

The hope for leadership?some inspired presentation of the hard but
necessary truths about how a country can recover from decades of political
economic malpractice?is also in vein since out of a confused conception of
how economies work there can be no coherent vision with which a population
might be educated as to how to act right. Nearly everyone in these
countries is wishing to square the economic circle, wanting to eat the
cake while having it too, looking for some Peter to rob so as to supply
Paul with resources.

The particular are not all the same, and some of the countries in Eastern
Europe are making some progress toward economic sanity, but, all in all,
reports are discouraging. At the recent Summer Seminars conducted by the
French based Institute for Economic Studies the reports from the various
countries, East and West actually, were depressing, even though the young
men and women who did the reporting were a rare collection of enlightened
classical liberals. The conclusion with which their reports left the
listener is that a fine opportunity was last back there in the early 1990s
when all those crooks who governed for over forty miserable years were
allowed to stay out of jail and continue to play as equal partners in
forging public policies for their countries.

What else can one expect, though, when the criminals
are invited to be on the same footing with those who were the victims?